Articles

What is a Spendthrift Trust?

A Fairfax, VA Estate Planning Attorney Discusses Spendthrift Trusts

Occasionally, we have clients who tell us that they have concerns that their husbands, wives, sons, daughters, or other beneficiaries will just squander their inheritances within a few months of the testator’s death. This may be because their beneficiaries have demonstrated a history of poor spending habits, make unwise investments, or they have creditors waiting to snatch any and all assets that fall into the heirs' hands.

Establishing a Spendthrift Trust

As northern Virginia estate planning lawyers, one of the vehicles that we recommend to our clients who have these concerns is the spendthrift trust. Like other trusts created in the Commonwealth of Virginia, a spendthrift trust is an asset pool that the benefactor/settlor establishes for a beneficiary. A responsible third person—the fiduciary—manages and dispenses the funds in accordance with the requirements of the maker of the trust. The benefits of a spendthrift trust are:

  • The beneficiary does not have direct control of the assets. The fiduciary can make direct payments to educational institutions, medical facilities, mortgage lenders, et cetera. Or he or she can dispense cash payments in small, regular amounts, like an allowance.
  • In most cases, if the spendthrift trust is properly established, the funds in the trust are legally protected from third party creditors.

Although the spendthrift trust sounds like the perfect solution for people who have fiscally irresponsible heirs, it is by no means a bulletproof instrument.

How a Spendthrift Trust Could Fail

Fiduciary Misconduct: If you are not using a licensed Virginia trusts and estates attorney as a fiduciary to govern the trust, you will need to make certain that the person you choose will make the right decisions for your heir. Trusts are only as good as their fiduciaries. So, for instance, if your fiduciary dispenses payments in too large amounts to your beneficiary, it would defeat the purpose of the trust, and the funds could be rapidly depleted.

Exempted Creditors: In some states, certain third parties are not considered creditors and can access funds in the trust through the courts. For instance, a parent seeking child support or an ex-spouse who is owed alimony may not be considered a creditor by the courts, and may bring suit to access the funds in the trust. Furthermore, many states allow creditors who provide necessity of life goods and services—food, housing, medical care—to go after funds in the trust.

Discuss the Spendthrift Trust Option with Your Virginia Estate Planning Attorney

Whether you have a relative who has a poor history of money management; suffers from drug, alcohol, or gambling addiction; or who is drowning in debt; the spendthrift trust may be your best option. Talk to a qualified Virginia estate planning attorney about this and other trust solutions.

Since 1980 the AV-rated law firm of Hale Ball has served the legal needs of individuals and businesses. Our team of attorneys include lawyers named to Super Lawyer and Rising Star lists, as well as attorneys with advanced legal degrees, specialty certifications and lawyers who teach their areas of practice to other lawyers.

Use the contact form on this page to schedule a consultation, or call 703-591-4900.

The transmission and receipt of information contained on this website, in whole or in part, or communication with the Hale Ball via the Internet or e-mail through this website does not constitute or create a lawyer-client relationship between this firm and any recipient.

Our Office

10511 Judicial Dr
Fairfax, VA 22030

Let us fight for you

Schedule a Consultation

We will use the information you provide on this form to connect and schedule a consultation with you to go over your legal needs. The transmission and receipt of information contained on this website, in whole or in part, or communication with the Hale Ball via the Internet or e-mail through this website does not constitute or create a lawyer-client relationship between this firm and any recipient.

Hale Ball is committed to providing you with excellent service while protecting the health and safety of our clients and staff. We offer videoconferencing, conference calls and electronic communication, as well as traditional in-person consultations. We are taking precautions to maintain a healthy office environment. As events evolve concerning COVID-19, we will strive to provide outstanding service in a socially responsible manner. Please contact us if you have any concerns.

X